Canadian economy pumps out disappointing inflation, retail trade numbers

The sluggish July sales figures landed the same month that the federal government distributed cheques to families under its revamped child benefit plan.

Experts like Bank of Montreal chief economist Doug Porter expect the Bank of Canada to take notice of both bundles of data.

“I would grade this one as a bit of an eyebrow raiser,” Porter said in an interview.

“It’s always notable when you get two significant reports like this, both pulling in the same direction — and they both are on the weak side of expectations.”

Still, Porter said he didn’t think there was enough disappointment to force the bank to seriously consider changing its position on the interest rate.

“But I think they probably will take a long look at both these reports with a bit of concern,” he added.

On inflation, the August consumer price index found prices rose in most major categories compared with a year earlier — with the cost of electricity, air transportation and passenger vehicles contributing the biggest upward pushes to the overall inflation rate.

A closer look at the numbers revealed that Canadians paid 14.5 per cent more for apples compared with a year earlier, 9.3 per cent more for fresh or frozen fish and 5.3 per cent more for cigarettes.

But increases like those were offset by lower prices for items like gasoline, which dropped 11.5 per cent, fuel oil, which fell 11.8 per cent and natural gas, which slid 9.9 per cent.

Economists had predicted inflation to ring in at 1.4 per cent in August, according to Thomson Reuters.

Desjardins senior economist Jimmy Jean wrote in a research note to clients Friday that by coming in under expectations the inflation rate is “preoccupying” for the Bank of Canada.

The August reading was near the bottom fringe of the central bank’s target range of one to three per cent.

Jean noted core inflation, which omits some volatile items like gasoline, fell below two per cent after five months above that level. The Bank of Canada’s core index was 1.8 per cent last month, down from 2.1 per cent in July.

Still, with Canada struggling to find a way out of a prolonged period of slow-growth, he doesn’t expect this report to prompt the bank to make a move for nearly two years.

Jean recalled that while the economy just emerged from a second quarter that delivered the country its worst contraction since 2009, the third-quarter forecast is much stronger.

Statistics Canada’s retail trade data showed that overall sales dipped slightly in July and totalled just over $44.1 billion.

“Canadians got the first of the family benefit cheques from Ottawa in July, but they weren’t in any hurry to reach into their wallets,” CIBC’s Nick Exarhos wrote in a note to clients, referring to the Liberals’ new plan.

On the positive side, retail sales increased 0.2 per cent in July when gas stations were excluded.

After removing price changes, it found sales volumes were up 0.3 per cent.

“The volume gain should be enough to keep us on track for decent monthly gain in July GDP, leaving (the third quarter) still tracking three per cent or so growth,” Exarhos said.

Across Canada, the numbers showed that retail sales fell in six provinces in July. The 6.9 per cent decline in New Brunswick and the 6.2 per cent drop in Newfoundland and Labrador in July coincided with increases in harmonized sales tax in both regions.

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Andy Blatchford, The Canadian Press

by Canadian Press

Canadian economy pumps out disappointing inflation, retail trade numbers

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